One minute you’re following that cute guy or gal on social media, the next you’re feeling strangely out of pocket. The plot misses out on a few points, but that in a broad sweep is the story financial regulators fear will be increasingly told in the age of the influencer.
Influencers are people with large followings on social media, such as Instagram, whose product and service recommendations are effective at boosting sales: they can shift stock by promoting it.
Finfluencers are those who are influential at selling financial goods and services, so far so good? Products such as pensions aren’t the sexiest thing in the world, so having anyone or anything that can promote them to the public must be a positive, right?
Well, not necessarily.
Finfluencers are more often than not amateurs. Their ‘expert’ knowledge about finance is no more than the man in the pub, so there’s no reason to trust their recommendations. In fact, there is every reason to distrust them. You don’t know who the person is behind the social media account, or what they know or why they are promoting something.
Unlike financial journalists, there is no editorial quality control on finfluencers, and unlike financial advisers, they are not trained and regulated.
When you consider the complexity of many financial products and the high-risk nature of assets like cryptocurrencies, the sheen starts to wear off from the hashtag social media economy.
The internet is the wild west and there are a lot of cowboys out there. The potential that consumers may sustain terrible financial damage in such an environment is a real one.
The Financial Conduct Authority (FCA) is understandably concerned by it and said it has increased its scrutiny of online, often illegal, financial promotions.
According to the regulator, the hype on social media and in the news is driving new investors to take up high-risk investments, with 58% of under 40s being influenced by social media to invest into products like cryptocurrency.
This appears to be reflected in the rising number of people who have piled into riskier investments. Over a million UK investors increased their holdings, or bought a high-risk investment during the pandemic, the FCA said.
Lucy Castledine, Director, Consumer Investments at the FCA, said, “We’ve seen a growing number of ads falling short of the guidance we have in place to stop consumer harm.”
She added: “We want people to stay on the right side of our rules, so we’re updating our guidance to clarify what we expect of firms when marketing financial products online. And for those touting products illegally, we will be taking action against you.”
The cowboys are in the regulator’s crosshairs. Their activities will be disrupted by new advertising rules that have been brought in for crypto firms marketing to UK consumers.
Since 8 October 2023, the FCA has banned incentives to invest in crypto, such as ‘refer a friend’ bonuses. Firms are required to have clear risk warnings and a 24-hour cooling period to give first-time investors the time to consider their investment decision.
And that is not all, the regulator is also consulting on extending its guidance to cover the use of social media to advertise financial services and products.
How to protect yourself
As always, the best defence against online fraud starts with the wary consumer themselves. A sceptical attitude to any financial product or service you see touted on social media is worth its weight in gold.
If you feel tempted to sink your hard-earned cash into a scheme you’ve seen advertised on social media, here are four things to keep in mind.
- Does it offer the prospect of dazzling returns in super quick time? Give it a miss. Investment returns invariably take time to achieve. If it seems too good to be true, it almost certainly is.
- Slow down and talk things over with a family member or friend.
- Be on the alert for clickbait. Read reviews of investment products.
- Check if the firm is registered with the FCA.
What should I do if I fall for a finfluencer con?
What if despite everything you end up being taken in by a get-rich-quick scheme endorsed by an unscrupulous finfluencer?
- Talk to your bank or credit card provider.
- Contact the FCA
- Contact the Advertising Standards Authority.
Photo by FRIMU EUGEN on Canva